CIO Journeys: Paul Carrett

“Investing in Asia is more interesting than in a developed market such as Europe, though it can also be harder.”

Paul Carrett

Tell us about your role at FWD Group and what your key priorities are.

I essentially manage the performance of the investment arm of FWD’s insurance business and that means attending to the needs of our many stakeholders including policyholders, shareholders, ratings agencies and regulators. Our ethos is to try to find the best returns you can for the lowest risks possible. An important priority as a CIO is also to manage the people that you rely on every day — you need to build and nurture a strong team as talent shortages are quite profound in Asia, so it’s important that you help them to excel.

What’s unique about FWD Group?

We’re comfortable with being different with our investment approach. We look at risk across the board and we have a very diversified portfolio across many asset classes. We invest in a lot of fixed income and equities, but if a good opportunity comes along in alternative assets that we can move quickly on, we are also very happy to do that. This can mean quite a lot of hard work to executing certain investments, but we’re very diligent and we put in the effort to ensure each transaction is done properly.

How do you form your investment view?

We believe in cycles. Humans have animal spirits and we invest in that way. We also invest across the capital structure in Asia and we build up each of our portfolios one by one. Asia is different from Europe because it is growing so much faster and there is more alpha here. The restrictions to access to certain markets in this region also gives us an advantage as an investor.

The opportunities and regulations also vary quite a lot in each of the markets in Asia. When you see an opportunity, you need to be able to move very quickly and that is our strength. Risk premia is low these days and there is potential for severe volatility. What makes asset allocation interesting from where I sit is that we can invest across the capital structure and there will always be interesting assets that we can invest in, so it’s very valuable being nimble in our region.

What are the challenges to investing in APAC?

Investing in Asia is more interesting than in a developed market such as Europe, though it can also be harder. We are affected by many different regulations, so we think about investments according to the market and not the region. We invest in Japan, Hong Kong and Thailand where we operate — and being a CIO in Asia, you don’t just need a strong macro view but you also need to understand in detail what you invest in. That’s where having a strong investment team helps.

A lot of markets in Asia are not always accessible and there are benefits to investing like a local company. Market access can be far from perfect and there are frictional costs. Some of these markets have trapped capital, which can make certain markets quite crowded. It’s both a challenge and opportunity. The local knowledge is really important.

What are the challenges facing a CIO today?

It’s a challenging macro environment. We’re really long into an upcycle for asset markets and the markets are looking expensive when you look at the risks. There are potential flashpoints politically that can harm underlying economies and markets, so diversifying your portfolio is really important. We believe in cycles and we are of the view that we are late in the cycle. On the technology side, we are looking at our stack and seeing what can be scaled. We’ve added new countries to our business and we need the technology infrastructure to help us do that. We do worry about the cost of a modular approach of tying many systems together, so we suspect that the market is moving towards a smaller number of systems. Some of the markets in Asia are relatively immature, so you need to build out the proper infrastructure to have an accurate view of the aggregate risks across your portfolio.

What role will technology play in the future of the buy side?

We would broadly follow a traditional approach to investment management, where we would go very deep in how we invest. There is a lot of interesting work that can be done because of the sheer amount of research and data out there. There are alternative data sets that people are using that can provide a transformational advantage to those who use them properly. For example, data scraping on job ads, power usage in China and other such data points where, if used collectively, could provide useful signals that can support your investment views. It’s still hard to use and clean this data, so this technique is very new to most asset managers.

What’s your favourite investment book?

George Soros’s The Alchemy of Finance, as his concept of reflexivity and self-reinforcing trends has strongly informed my view of the investment world. He is also more of a philosopher than a typical investor.

Additional Resource

FWD Group and Bloomberg

FWD Group recently adopted Bloomberg’s full suite of buy-side risk management solutions, including the Multi-Asset Risk System (“MARS”), Asset and Investment Manager (“AIM”), enhanced Portfolio and Risk Analytics solution (“PORT+”) and its latest IFRS 9 solution.

The Journey to Tomorrow’s Buy-Side Operating Model

Today’s buy-side leaders know they need a clear, compelling vision to stay competitive. Attracting new assets, providing transparency and value, meeting growing regulatory demands, empowering people with efficient processes and tools, managing costs and maximizing performance are all essential.

Solutions for the Buy Side

Powered by an unparalleled combination of automation, innovation, access and service, Bloomberg’s comprehensive and integrated enterprise solutions help buy-side firms generate alpha, develop and service clients, remain compliant and grow profits in the face of change.